Soft and hard credit checks, and what they mean for your credit rating

Whether you’re looking to take out a personal loan, apply for a mortgage or get a new credit card, it’s worth finding out your credit rating.

Find out why it's important to shop around for a loan before applying, and how hard searches can impact on your credit rating.

Credit ratings or credit scores help you and potential lenders gain a clearer picture of your financial history. When financial companies want to look at your score, they check it by using a soft search or a hard search. The outcome of these can determine your eligibility for a loan, mortgage or credit card.

So, how does it work? What’s the different between a hard search and a soft search, and can checking your own credit score damage your rating?

What is a credit rating?

Determined by an algorithm a credit score is based on anything assigned to your name and your financial accounts, known as your credit file. From mobile phone contracts and utility bills, to overdrafts and direct debits, essentially all things relating to money and how you use it can affect your credit rating.

For example, failing to pay a phone bill on time or failing to pay the minimum monthly payment on a credit card will damage your credit rating. Equally however, people who have never borrowed can have a low credit score or a ‘thin file’, which also makes them less desirable candidates for loans, mortgages and credit.

Remember, your credit rating is not set in stone. In fact, each credit bureau (the people behind the credit ratings) has a different way of calculating your rating, and your score can fluctuate month on month.

How do credit searches work?

You’ll submit personal info like your name, address and date of birth. Details are then sent to a credit bureau or agency to carry out the soft or hard search, who then provide the lender with information from your credit file.

Note that when making their decision, lenders compare the information on your credit file with the information on your application for a product. That’s why it’s crucial to be as accurate possible on applications – any false information may be considered fraud.

What is a soft credit search?

A soft search is a credit check and it happens when a lender searches for information about you. Soft searches may take place when businesses, such as loan providers, credit card or insurance companies check your credit to pre-approve you for offers.

Soft searches can also be used for identity checks for pre-employment processes and to prevent fraud.

Soft searches are recorded on your credit file and remain there for 12 months but are only visible to you. So you don't have to worry about how often these are done.

Soft search eligibility scores allow you to better understand your options, and prevent you from applying for the wrong financial products, protecting your credit score without leaving a bad mark.

It's worth noting that not all lenders offer soft searches so be sure to check this before committing to a quotation.

What is a hard credit search?

A hard search is carried out when you apply for any sort of loan, mortgage, or credit card. Typically, a hard search needs to be authorised by you, not the lender, but lenders won't even consider an application without carrying out a hard search. A hard search will register on your credit report for 12 months.

The record is for lenders. It’s all about assessing risk: if a prospective borrower has made numerous applications and carried out numerous hard searches, they may be considered a higher risk and may be an undesirable candidate for a loan, however lots of different factors  are taken into account and you may still be successful in your application.

Your credit score may drop slightly after a hard search, and it could have an impact on your ability to get a loan afterwards. Beware of applying for lots of loans or credit cards, as lenders will be able to see multiple applications and may take them into account when deciding whether to accept your application.

Where can I check my credit score?

There are different credit score providers offering different prices, and some won’t cost a penny. In the UK, the most popular agencies providing this service to individuals and to lenders are Experian, Equifax, and TransUnion.

Admiral Loans use two credit reporting agencies - Equifax and TransUnion.

Will a credit check affect my credit rating?

A soft search will not affect your credit rating. It doesn't matter if you are the one checking your credit rating or if a company is evaluating you to see whether you qualify for a pre-approved card, your credit rating will remain intact during and after a soft search 

A hard search will affect your rating and will lower your credit score. The more hard searches performed, the more damage it can do.

How do I improve my credit rating?

Joining the electoral roll and cancelling your existing credit cards if you are no longer using them are good places to start. You could also use a credit check service such as Equifax or CreditExpert to see where you can make improvements and correct any mistakes. Making regular payments and being conscientious about how and when you borrow will also put you in good stead. Read Admiral's top tips to improve your credit score.

How often do credit scores update?

Your credit report will be updated once a lender provides new information to the credit reference agencies. It can often take one to two months for your updated information to reflect on your credit score.